Under the Banyan Tree - Busting the myths on Asian supply chains
Jan 25, 2024
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Fred Neumann and Herald van der Linde debunk myths about Asian supply chains, discussing the shifting dynamics and China's dominant role. They explore the impact of Chinese companies investing in Southeast Asia, the reality of supply chain movements in Asia, and the challenges of diversifying supply chains. They also discuss the potential benefits for India's growth through supply chain diversification.
The shift in Asian supply chains from China is limited to a few economies like Vietnam and Malaysia, with India's impact being insignificant on its overall economy.
Chinese companies are also relocating investments and production facilities to other economies, increasing connectivity between these economies and China.
Deep dives
Limited scope of supply chain diversification in Asia
The idea of supply chain diversification and moving away from China is often discussed, but the actual shift is more limited in scope. The primary beneficiaries are Vietnam, Malaysia, and a few other economies. While some tech companies are investing in India, it doesn't make a significant impact on the Indian economy as a whole.
Chinese companies driving supply chain movements
Contrary to popular belief, it is not just Western companies but also Chinese companies that are moving investments and production facilities to other economies. Chinese companies often use Chinese components, thereby increasing the connectivity between these economies and mainland China. This trend is driven by various factors including weak domestic demand in China, rising labor costs, and trade restrictions in the global economy.
China's increasing importance in global manufacturing
Despite the supply chain movements, China's centrality in the global manufacturing sector has actually increased. The factories in other countries still rely on Chinese components, making China more essential to the manufacturing process. The types of goods produced in China have evolved to more sophisticated products, such as electric vehicles and industrial components, reinforcing its importance in global manufacturing supply chains.